29 April 2015

Health provider networks, quality and costs

Christoph Schottmüller explains about his research: "We provide a modeling framework to think about selective contracting in the health care sector. Two health care providers differ in quality and costs. When buying health insurance, consumers observe neither provider quality nor costs. We derive an equilibrium where health insurers signal provider quality through their choice of provider network. Selective contracting focuses on low cost providers. Contracting both providers signals high quality. Market power tends to lower quality and lead to inefficiency. In a dynamic extension of the model, providers under-invest in quality while there can be both over and under-investment in cost reductions if there is a monopoly insurer while an efficient investment equilibrium exists with insurer competition."

Christoph has published articles within health economics in the Economics Journal and the European Economic Review:

"Health Insurance without Single Crossing: Why Healthy People Have High Coverage", forthcoming in the Economic Journal

Abstract: Standard insurance models predict that people with high risks have high insurance coverage. It is empirically documented that people with high income have lower health risks and are better insured. We show that income differences between risk types lead to a violation of single crossing in an insurance model where people choose treatment intensity. We analyse different market structures and show the following: If insur- ers have market power, the violation of single crossing caused by income differences and endogenous treatment choice can explain the empirically observed outcome. Our results do not rely on differences in risk aversion between types.

"Cost incentives for doctors: A double-edged sword" in the European Economic Review 2013

Abstract: If doctors take the costs of treatment into account when prescribing medication, their objectives differ from their patients’ objectives because the patients are insured. This misalignment of interests hampers communication between patient and doctor. Giving cost incentives to doctors increases welfare if (i) the doctor’s examination technology is sufficiently good or (ii) (marginal) costs of treatment are high enough. If the planner can costlessly choose the extent to which doctors take costs into account, he will opt for less than 100%. Optimal health care systems should implement different degrees of cost incentives depending on type of disease and/or doctor.

Contact: Christoph Schotmüller